The Use of Knowledge in Society

"The Use of Knowledge in Society" is an academic paper written by economist Friedrich Hayek, that was first published in 1945. At that time a clear counterargument to a planned and centralized economy, it is more actual than ever!

Friedrich A. Hayek

The American Economic Review, September 1945

"The Use of Knowledge in Society" is an academic paper written by economist Friedrich Hayek, that was first published in 1945. At that time a clear counterargument to a planned and centralized economy, it is more actual than ever!

We present herewith a few excerpts:

"It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge not given to anyone in its totality."

"This charachter of the fundamental problem has, I am afraid, been rather obscured than illuminated by many of the recent refinements of economic theory, particularly by many of the uses made of mathematics."

(...)

"I have deliberatly used the word "marvel" to shock the reader out of the complacency with which we often take the working of this mechanism for granted. I am convinceed that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind.

Its misfortune is the double one that it is not the product of human design and that the people guided by it usually do not know why they are made to do what they do.

But those who clamor for "conscious direction" - and who cannot believe that anything which has evolved without design (and even without our understanding of it) should solve problems which we should not be able to solve consciously - should remeber this: The problem is precisely how to extend the span of our utilization of resources beyond the span of the control of any mind; and, therefore, how to dispense with the need of conscious control and how to provide inducements which will make the individuals do the desirable things without anyone having to tell them what to do."

(...)

"The problem which we meet here is by no means peculiar to economics but arises in connection with nearly all truly social phenomena, with language and most of our cultural inheritance, and constitutes really the central theoretical problem of all social science."

(…)

"The price system is just one of those formations which man has learned to use (though he is till very far from having learned to make the best use of it) after he had stumbled upon it without understanding it."

(…)

"To assume all the knowledge to be given to a single mind in the same manner in which we assume it to be given to us as the explaining economists is to assume the problem away and to disregards everything that is important and significant in the real world."

(…)

"It suggests rather than there is something fundamentally wrong with an approach which habitually disregards an essential part of the phenomena with which we have to deal: the unavoidable imperfection of man’s knowledge and the consequent need for a process by which knowledge is constantly communicated and acquired.

Any approach, such as that of much of mathematical economics with its simultaneous equations, which in effect starts from the assumption that people’s knowledge corresponds with the objective facts of the situation, systematically leaves out what is our main task to explain. I am far from denying that in our system equilibrium analysis has a useful function to perform. But when it comes to the point where it misleads some of our leading thinkers into believing that the situation which it describes has direct relevance to the solution of practical problems, it is time that we remember that it does not deal with the social process at all and that it is no more than a useful preliminary to the study of the main problem."